They aren’t the sexiest merchants in America and in fact they probably don’t register much of a blip on most consumers’ shopping radar. But at $7.6 billion in annual revenue they are bigger than Nordstrom. And now they’re coming on strong with a web site that has already extended their reach beyond their core market.
They are the Post Exchanges-PXs to military personnel. They offer great prices on all kinds of merchandise. And to buy from one, a consumer must be military, retired military, National Guard or a family member. They have a strong enough following-based primarily on hugely attractive discount prices-that many ex-military folks who live near bases shop in the PXs regularly.
Now, no longer do veterans have to live near a base to take advantage of the PXs. For nearly three years, the PXs’ parent organization-the Army and Air Force Exchange Service-has operated a web site. Volume on the site doubled last year over the previous year which itself was more than 220% over the year before.
Barry Gordon, senior vice president, cyber region, with the Dallas-based AAFES, credits the computer-savvy population that makes up the Exchange Service’s target market for the organization’s online success. Servicemen and women tend to be computer literate, as most use computers in their jobs, Gordon says.
In addition, like many other bricks-and-clicks retailers, the Exchange Service has been focused on “capitalizing on convergence,” says Gordon. The organization’s goal is to get customers to shop with them through all channels. “The career military person and enlistee have an affinity with us,” Gordon says. “Trust is a major factor we’re trying to capitalize on.”
While undoubtedly a major retailer, the PX system competes mainly with local merchants for shoppers’ dollars. The big discount chains don’t consider the PXs to be in the same league, but small merchants near military bases keep a close eye on prices and activities at the local PX. Having a web site could make PXs more of a factor to nationwide retailers, who might have to start watching the PXs more closely. But the PXs’ customer base is still small enough that competitors may not feel the impact for some time.
Nearly 5 million PX customers live within 40 miles of a PX. There are 7.5 million authorized PX customers worldwide. Of the 7.5 million, 29% are on active duty, 31% are in the National Guard or reserve and 40% are retirees.
The Exchange Service already sells about $90 million through its catalog/Internet channel and Gordon expects that number could increase to as much as $200 million as soon as 2003. The service’s goal is to rank in the top 40 web stores within two years. With present volume, PX.com ranks in mid 50s, based on the National Retail Federation’s ranking of Internet retailers. The PX ranks among the 40 largest retailers overall and in the top dozen of mass discount retailers.
The Exchange Service’s mission always has been to support America’s service men and women by providing merchandise and services at reasonable prices. Today’s organization, however, bears little resemblance to its predecessors. These were the sutlers, or entrepreneurs that followed the U.S. cavalry, setting up shops where soldiers could buy provisions. In 1895, the War Department ordered post commanders to establish an exchange at every post.
AAFES’ job today is a huge one. A modern Post Exchange offers everything from toiletries and military uniforms to giftware and electronics. Some overseas exchanges sell new cars. What’s more, because the clientele includes new recruits as well as retired generals, the price points vary greatly. For instance, shoppers can find watches ranging from less than $100 up to several thousand.
AAFES’s 18 lines of business covering the globe put it among the largest retailers in the world. It employs 54,000 and operates more than 10,500 facilities, including exchanges, stores, shopping centers, and fast-food outlets. The organization runs one of the world’s largest proprietary credit card operations. “It’s the sleeping giant that no one knows about,” says Rick Berg, senior strategy manager with iXL Inc., a technology consulting firm headquartered in Atlanta.
AAFES is a “non-profit profit-making organization,” Gordon says. About 70% of its earnings help fund Morale, Welfare, and Recreation, programs. These include libraries, sports facilities, child-care centers and other programs on America’s military bases. The remaining net income is used to build new stores and renovate existing ones. In 1998, the Exchange Service distributed $238 million for MWR programs and spent $178 million to improve and build stores.
In 1996, the organization made its move online, driven by chief information officer, Luis Merced.
The PX service benefits from Internet sales by being able to extend its reach and merchandise while avoiding the high costs of expanding in the real world. “Selling online doesn’t reduce any of our current costs,” Gordon says. “Rather, it allows us to offer a much broader selection of merchandise to our customers, who may be stationed remotely and whose local PX cannot justify the stocking of high-ticket or non-essential items.” We are able to substantially increase our offerings with minimal incremental and logistics costs.”
The online operation, along with the AAFES catalog, is service-neutral, Gordon says. That is, military men and women from the Navy, Marine Corps, and Coast Guard, as well as the Army and Air Force, all log on to the same site to shop. The online exchange goes by the generic title of “Exchange Online Shopping.” In contrast, the Navy, Marine Corps and Coast Guard have their own operations to run the exchanges on their bases.
Analysts say that the move to the web made sense. “The PXs offer a lot of savings to the military men and women. If they now can get a way to buy the goods without traveling long distances, it’s a real natural,” says Chris Boring, president of Boulevard Strategies, a Columbus, Ohio-based retail consulting firm.